RPT-BREAKINGVIEWS-Pipsqueak US lenders can grab the crypto bag

By Stephen Gandel

NEW YORK, Nov 18 (Reuters Breakingviews) - Cryptocurrency firms are readying their next incursion into traditional finance. LevelField's $70 million deal for regional lender Burling Bank is the latest sign. Despite the tiny size, a rich valuation and tentative blessing from regulators should add fuel to an already-accelerating pace of dealmaking. The only problem: an ongoing meltdown in the crypto market that could perturb the party. More small banks, facing higher technology costs and tougher competition, should take the money while it’s on offer.

On Monday, LevelField announced that Illinois banking regulators had signed off on the deal, initially announced all the way back in 2023. If the Federal Reserve, which must also review the tie-up, does likewise, then this would become the first successful acquisition of a bank by a crypto firm. The Houston-based digital asset brokerage is not alone in hunting for a way to secure a banking license, which grants access to deposit insurance and the broader financial system. Consultancy Klaros counts eight crypto-related firms that have applications pending with the Fed for licenses.

LevelField is paying richly for the privilege, offering just over 2.4 times the seller’s book value, which is an over-60% premium to this year’s average for similar deals, according to S&P Global data. Burling is very small, with only $200 million in assets, making it roughly one-twenty thousandth of JPMorgan. Still, the trend in valuations is up, with deal multiples rising to 1.5 times book this year from 1.3 times in 2024.

To make the deal worth it, LevelField's plan is to marry its crypto brokerage with the ability to lend against Burling's deposits, including by offering margin loans to the buyer’s primarily retail-trader clientele. Burling holds other advantages, too. It already has a small business lending to crypto firms, and has done so without drawing the ire of regulators.

Small banks face increasing threats from their bigger brethren, while the rise of disruptive financial technology firms is forcing them to spend more to keep up. That's helped to make consolidation much more attractive. The value of U.S. bank M&A rose to $24 billion in the first nine months of this year, up from $16 billion for all of 2024, S&P reckons.

At these prices, plenty of other pipsqueak lenders would be happy to join the party. The looming threat is that crypto buyers might pull back: bitcoin is down roughly 20% over the past three months, while the overall value of cryptocurrencies in circulation has slipped by 13% in just the last 30 days, according to CoinMarketCap. The best time to sell is now.

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CONTEXT NEWS

Illinois's state banking regulator on November 17 signed off on crypto trading firm LevelField's acquisition of Chicago-based community bank Burling. LevelField first announced its planned acquisition in 2023.